For small business owners, the intrigue of taking their products and services off shore can be too exciting to ignore. But among all the hype that international business can bring, there are still numerous risks to assess and manage if you decide international trade is right for you.
Perhaps the most important area to consider when investigating international trade is the contract you hold with the customer or supplier. The basic form of the contract is important as the form chosen will depend on the law to which it will apply, particularly whether it will come under the common law system or the civil law system.
So if you are considering taking the plunge and looking offshore to expand your business, here are the top five issues you need to be aware of in regard to the contract. It’s important to keep in mind these are basic points that need to be dealt with wholly in a proper agreement for international trade. The amount of money invested in your international trades will determine just how much advice you should need in relation to a range of things, including risk assessment, government restrictions, product liability, credit insurance, credit checks and political risk in your target country.
- Payment – this is particularly important before you develop an ongoing, trusting relationship with the purchaser of your product. There are a number of avenues for you to tackle this, including pre-payment, obtaining an irrevocable letter of credit, credit checks or taking out credit insurance.
- Language – the language of the contract is of utmost importance to avoid any potential disputes. It will be to your advantage to have the contract written in English.
- Jurisdiction – You’ll need to consider which laws will apply to the contract. You may decide the laws of the country where the other party is situated are sufficiently clear and robust to rely on them. However, in a lot of circumstances, it is advantageous to apply the laws of Australia to your contract. As a compromise, both parties may agree the laws of an independent third country might apply to the contract as long as the laws of the third country were reliable.
- Dispute resolution – There are a number of ways you can go about creating a clear dispute resolution process. One option for you is to specify that disputes will be resolved by arbitration in a reputable centre like New York, Singapore, London, Sydney or Paris. While that may sound extravagant and unnecessary, this can be very important when dealing with a customer in a less developed country where there can be little confidence you will receive a fair decision. Countries which are signatories to the New York Convention on the enforcement of arbitration awards will generally allow the enforcement through their courts of an award made by an authority in a fellow participant country.
- Intellectual property – Before you reveal your intellectual property to someone outside Australia, you should obtain advice on the protection available to you. You will need to decide whether protection is desirable before revealing all.
About the author
Robert Cunningham is Special Counsel at Brisbane-based Paxton-Hall Lawyers.